Weingarten Realty Investors
Q2 2013 Earnings Call Transcript

Published: 2 Aug 2013

[Operator:]

Good morning, and welcome to the Weingarten Realty Second Quarter Earnings Conference Call. My name is Brandon, and I'll be the operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Ms. Michelle Wiggs. Michelle, you may begin.

[Michelle Wiggs:]

Good morning, and welcome to our second quarter 2013 conference call. Joining me today is Drew Alexander, President and CEO; Stanford Alexander, Chairman; Johnny Hendrix, Executive Vice President and COO; Steve Richter, Executive Vice President and CFO; and Joe Shafer, Senior Vice President and CAO. As a reminder, certain statements made during the course of this call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results could differ materially from those projected in such forward-looking statements due to a variety of factors. More information about these factors is contained in the company's SEC filings. Also, during this conference call, management may make reference to certain non-GAAP financial measures, such as funds from operations or FFO, both recurring and reported, which we believe help analysts and investors to better understand Weingarten's operating results. Reconciliation to these non-GAAP financial measures is available on our supplemental information package located under the Investor Relations tab of our website. [Operator Instructions] I will now turn the call over to Drew Alexander.

[Andrew M. Alexander:]

Thank you, Michelle, and thanks to all of you for joining us. We are very pleased to report another great quarter. Operations remain extremely strong. Our capital recycling program was very active, and we continue to improve our balance sheet metrics, each of these representing an important strategic objective of the company. Our outstanding portfolio produced excellent second quarter results that included stronger-than-expected Same Property NOI growth of 5% and an increase in occupancy to 94.2%. Looking forward, we continue to see strength in our leasing efforts, and we are cautiously optimistic that tenant fallout will remain minimal, both of which should contribute to solid operating results. With respect to our capital recycling efforts, the future is less clear. The Fed's talk of tapering clearly impacted long-term rates, and we're carefully monitoring the effect this will have on cap rates, although we've have not seen any evidence of movement as of yet. So at this time, we feel very good about selling property and less bullish about finding significant quality acquisitions which make economic sense. I'll now turn the call over to Steve to discuss our financial results.

[Stephen C. Richter:]

Thanks, Drew. recurring FFO was $0.49 per diluted share for the quarter, up from $0.47 in the second quarter last year. Consistent with last quarter, FFO for the second quarter benefited from bad debt recoveries as well as lower-than-normal bad debt expense due to low tenant fallout. These items contributed to a very strong Same Property NOI increase of 5%, which was above our plan. Also benefiting recurring FFO for the quarter was $900,000 of fee income resulting from the termination of a joint venture relationship. Reported FFO for the second quarter was $0.37 per share compared to $0.45 in 2012. Included in the 2013 amount was a noncash write-off of preferred redemption cost of $15.9 million or $0.13 per share related to our calling 200 million of our preferred F shares. Also included in reported FFO was a benefit of about $0.005 per share related to a payment received against a previously reserved note receivable. So bottom line, we had another very good quarter. However, some of the items like bad debt recovery, fee income from JVs, et cetera that contributed positively may not recur as we move through the second half of the year. Turning to the balance sheet. We continue to enhance our financial position and liquidity. In April, we finalized an amendment in our revolving credit facility that allowed us to reduce our credit spread by 10 basis points and facility fees by 5 basis points and extend the maturity to 2017 with options for 2 6-month extensions. Additionally in June, we redeemed 200 million of our preferred F shares. However, we still have 150 million of the series F outstanding. As of yesterday, we had less than $100 million drawn under our line of credit, which will likely be paid down with dispositions over the next few months. Our balance sheet is in great shape. At quarter end, the company's net debt to EBITDA was a strong 6.2x, and debt to total market cap remains low at only 37.3%. We remain committed to keep leverage below the 40% level, so things are also very good on the financial front. Moving to guidance. All of our updated guidance information is included on Page 9 of the supplemental. We are increasing recurring FFO to a range of $1.89 to $1.93 per share, increasing the Same Property NOI to 3% to 3.5%, lowering acquisitions to $100 million to $150 million, lowering investment in new development to $15 million to $50 million and finally increasing dispositions to $250 million to $350 million. Johnny?

[Johnny L. Hendrix:]

Thanks, Steve. Clearly, the company has performed well. Same Property NOI averaged 4.4% for the first half of the year. Leasing velocity has picked up. Occupancy moved up to 94.2% earlier than we had expected. Tenant fallout and bad debt are lower than we expected, and we received higher-than-anticipated percentage rent. We have great properties. Mostly supermarket and discount clothing anchored, these assets are located in great markets with the best job and population growth in the country. We have a great platform that is a built to focus on leasing and operating our properties efficiently. And finally, we have great associates. There are also market factors impacting our results. Most significantly, the lack of new inventory coming into the market has helped tremendously. In addition, we are enjoying this low interest rate environment, which is propelling the stock market and housing prices and in turn, providing optimism for consumers to spend. Looking at our Same Property NOI, we produced an average increase of 4.7% over the last 4 quarters. I expect that to moderate as we start comping against a very strong second half of 2012. We believe 2% to 3% is realistic for each of the next 2 quarters. Most of our Same Property NOI increases are attributable to increasing occupancy over the previous periods. While most of our regions performed very well during the quarter, we saw strong Same Property NOI results from Texas with a 6.4% increase, Florida with a 6% increase and California with a 7.3% increase. These are also the markets that have been the significant drivers increasing occupancy. Today, Texas is at 95.6% leased, Florida is 95.2%, and California is 96.3%. These 3 states represent over 50% of the company's net operating income. Given the strength we are experiencing throughout the portfolio, it's my expectation we will continue to increase occupancy over the balance of 2013 and approach 95% by year end. Space that is signed and not commenced continues to be greater than we would consider normal. So as that space is commenced, it will fuel future Same Property NOI increases. At quarter end, we had a little over 700,000 square feet not commenced. We expect to commence about 400,000 square feet through 2013 and the balance during 2014. We continue to make good progress on spaces under 10,000 square feet. At quarter end, we were 88.6% leased, up 40 basis points from the previous quarter. Spaces over 10,000 square feet picked up 60 basis points to 97.7%. I did want to mention that we are adding additional disclosure for same property occupancy on Page 26 of the supplemental. Today, we're 95% leased for same property. As for leasing, it's exciting to see our velocity pick up. We executed 377 leases during the quarter, representing almost $21 million in annual base minimum rent. New leases were over $9 million and renewals just over $11 million. Base minimum rent for new leases is up significantly from both last quarter and the second quarter of last year. Rent growth for the quarter was 8% with new leases up 19.3%. As we've discussed in the past, a couple of transactions in any given quarter can have a significant impact on this particular metric, good or bad. For this quarter at Pike Center in Washington, D.C., we built a 21,000 square-foot Office Depot space that was at $10 a square foot with a Pier 1 and an Ethan Allen at a blended $43 per square foot. This represents an annual increase of approximately $700,000 for this one space. You exclude these 2 leases, rent growth for the quarter was 3.5%. As we've stressed over the years, we're making most leasing decisions on the ground considering choices we have for each space. I think we've consistently made the right choices. And now that occupancy has improved, we generally have a little more leverage to improve rent growth going forward. So you can see operationally, we're hitting on all cylinders. Shifting to our recycling program. We've made great progress improving the quality of our portfolio. Since 2007, we've sold $2.3 billion in assets. We focused on selling centers that are small, are located in small towns, have independent supermarkets or have other tenancy concerns and reinvesting these proceeds in Class A shopping centers and gateway markets. As a result, our base rent has increased 21%, and our average household income has increased 13% during that time period. Year-to-date, we've disposed of close to $124 million of property at a cap rate of 7.4%. This is about 100 basis points better than we anticipated in our business plan, which is reflective of a positive pricing environment over the last 6 months. Today, we have an additional 26 transactions representing about $270 million of assets that we've agreed to sell at around an 8% cap rate. Not all those transactions will be finalized, and some will slip into 2014. So I think it's reasonable we can end the year toward the top of our $250 million to $350 million range. To date, we've not seen any impact from pricing, from rising interest rates. B assets today are selling at cap rates around 7% to 8%, and there seems to be more buyers today than over the last 5 years. In the last several quarters, we've noticed the shift from local buyers to high-net-worth individuals, private REITs and funds. We've also bought a couple of great properties during the quarter. We closed on Queen Anne in Seattle with our partner, Bouwinvest. This is the first asset for our venture that could eventually grow to around $225 million. Queen Anne is in an affluent neighborhood with great density, over 200,000 people in 3 miles with an incredibly high 68% college graduates. We also closed on independent shopping center in Laredo, Texas. The center is anchored by an HEB Supermarket, Ross, TJ Maxx, Hobby Lobby and several other national retailers. The market we call South Texas, including Laredo, Corpus Christi and McAllen is an important region for us. It's influenced by the Eagle Ford Shale energy play and an incredible pent-up demand from millions of people in Northern Mexico who have very limited buying opportunities. These folks are crossing the border daily to shop in our retail centers. Weingarten has 13 shopping centers in South Texas today, representing about 5% of our net operating income. Seven of those assets are anchored by high-volume HEBs, and our centers there are over 96% leased. We expect cap rates for core assets will remain in the 5% to 6% range, at least until some of the dedicated money has run through the system. That being the case, along with increases in interest rates, it will be difficult for us to invest profitably over the next several quarters. We will remain disciplined and look for opportunities to invest where we see good quality properties with good growth. Drew?

[Andrew M. Alexander:]

Thanks, Johnny. We're very pleased with our results through the first half of 2013. Operations are great as occupancy continues to climb. Leasing is steady, bolstered by tight supply. Our balance sheet is solid, further enhanced by ongoing dispositions. While the world economy remains unpredictable, we remain confident that our great people, great properties and great platform will allow us to produce great results for the balance of 2013 and beyond. I thank all of you for joining the call today and for your continued interest in Weingarten. Operator, we'd now be very happy to take questions.

[Operator:]

[Operator Instructions] And from Citigroup, we have Quentin Velleley on the line.

[Quentin Velleley:]

Just firstly, a point of clarification. That $900,000 of net joint venture termination fee, was that included or excluded from your 5% same-store NOI growth number?

[Stephen C. Richter:]

Thanks, Quentin. This is Steve. Same Property NOI excludes the JV, the $900,000 of JV fees.

[Quentin Velleley:]

Perfect. And then just secondly, the 2 leases that drove the very large new lease spreads at the Pike, your TIs also jumped to about $22 a square foot in the quarter on new leases. Was a large proportion of that jump related to those 2 new leases at the Pike?

[Johnny L. Hendrix:]

Quen, this is Johnny. In fact, no. Those were actually very, very low. The real drivers of the increase were a couple of larger deals. I think you can see that we did 5 boxes during the quarter, and that's really what drove it. We had an Ulta kind of mixed in there. And I think you probably know, their TIs are relatively high.

[Quentin Velleley:]

Okay. So the $22 is not a new normal for leasing TIs?

[Johnny L. Hendrix:]

I do not think so, no.

[Operator:]

From SunTrust, we have Ki Bin Tim on the line.

[Ki Bin Kim:]

Can you maybe talk a little bit more about if there's any future lumpy leases like The Pike that you just did that could probably -- that may potentially provide another boost to same-store NOI going forward?

[Johnny L. Hendrix:]

Ki Bin, this is Johnny. I don't see anything like that in the near term. Obviously, I hope we can lease some more space. We just don't have that many more large spaces. I do want to kind of make sure you do or aware of something. Pike is not in our Same Property NOI number. We've owned that for less than a year. Generally, what we do is we'll look at all the assets that we own for the year as of January 1. And we have about 90% of all of our NOI in our Same Property NOI, but acquisitions generally take about a year to get into the system.

[Operator:]

From RBC Capital Markets, we have Wes Golladay on line.

[Wes Golladay:]

About a year ago, you guys had identified 60 assets that you wanted to dispose of. How far along are you with that, once you get to the $250 million to $350 million of dispositions?

[Andrew M. Alexander:]

It's Drew. We have made extremely good progress on the disposition program that we outlined mostly in our Investor Day back in April 2011. And as Johnny mentioned, we've got a robust pipeline right now. And we anticipate that we'll have a very good year in '13. We sort of see '14 as another year where we'll have a good amount of dispositions and then return to sort of more normalized. So a lot of things have changed. We make those decisions locally as market conditions change. I think we've done a fantastic job of migrating the portfolio when you look at the concentrations that we have in major metropolitan areas in California, Texas, Florida, Georgia, et cetera. So real good progress. Probably another year or so to go. The transformation is certainly most of the way done.

[Wes Golladay:]

Okay. And now turning to the acquisition side for Bouw [Bouwinvest] investment, I think you mentioned $200 million of additional acquisition opportunities. Will this be in a specific region?

[Andrew M. Alexander:]

We are targeted, I think, out West there, generally, center -- West of the Mississippi, again, looking at principally supermarket-anchored, major metropolitan areas.

[Operator:]

From Robert W. Baird, we have Jonathan Pong online. Please go ahead.

[Jonathan Pong:]

When do you expect to hear back about the Walter Reed development rights with Heinz? And what would be sort of the scope in terms of size of square footage or cost you would be involved in on that project, should you be aware of those rights?

[Andrew M. Alexander:]

Jonathan, it's Drew. It's a little unclear as to exactly when. it's the city and it's politics in Washington, D.C. But we think sometime in the fall, we think one of the beauties of our proposal is we've got a very strong team and have done a tremendous amount of outreach in the neighborhood and can very much customize our pro forma and plans to what makes sense in the best project that can be put together. Which in this case, the best involved a lot of different things in terms of green space and park and a lot of things that the city and the community wants as well as a good tax base and a good ad valorem tax base and sales tax base. So a lot of things would have to be balanced out. It's estimated that the retail part will be around 200,000, but it could be 150,000, it could be 250,000. And we estimate very broad numbers that our investment be somewhere around $80 million in the retail park. But again, those are very broad numbers. There's still a lot of discussions to go. It's an exciting project. We are in the somewhat final round and very pleased with our capabilities being recognized. But it is a very involved process with both the federal government and D.C., so should have better clarity sometime "later this fall."

[Jonathan Pong:]

Great, that's helpful. And I guess when you talked about the acquisition markets, obviously a very challenging environment right now for high-quality deals. You also have quite a few assets that are tied up in JVs. Where -- how do you think about those assets as potential consolidation opportunities for you? And where do you think your partners' minds are in terms of them looking for a potential way to liquidate their investments?

[Andrew M. Alexander:]

I think it all depends. There are times when I've heard people talk about getting such a good deal from their joint venture partners. I wonder if their joint venture partner was on the phone, if they'd feel comfortable with that. So it's something that we will look at and evaluate each deal on its merits. There are times where it makes sense for us to go ahead and sell. And there are certainly times if our partner wants to get out for some reason and wants a deal with good certainty, we'd be happy to buy. But to my mind, each deal needs to be looked at on its own merit, and we need to be sensitive to our fiduciary responsibilities to all our various stakeholders.

[Operator:]

From Green Street Advisors, we have Jason White on the line.

[Jason White:]

I was wondering if you could break down the components of same-store NOI? I saw that your retail come in -- occupancy increased 90 basis points and you said there was a bad debt benefit as well. But if you can kind of quantify those?

[Johnny L. Hendrix:]

Jason, this is Johnny. I can kind of give you the definition or kind of the pieces that we include in Same Property NOI. I said earlier, we look at assets that we've owned for a year as of January 1. We include rent, common area maintenance, taxes and insurance including adjustments. We include bad debt charges and recoveries. We do not include terminations, and we don't include joint venture fees. So that's really roughly a breakdown of kind of everything that we include in Same Property NOI.

[Stephen C. Richter:]

I might just add to that, that in the quarter, we had some -- it's tough to really know exactly how much for example bad debt recovery is, and then how much of -- where bad debt would be. But we think somewhere in $0.01, $0.015 kind of range is what we think is would not recur going forward. But again, that's a soft number because it's a very difficult to really get your arms around that.

[Jason White:]

So as a percent of the same-store, we can probably use that $0.01 to back into the percentage contribution ahead of the 5%?

[Johnny L. Hendrix:]

Jason, this is Johnny. I can tell you that the Same Property NOI would have been 4.4% without bad debt. I mean, that's the number.

[Jason White:]

That's helpful. And then second part is when you look at your acquisition guidance is now lowered and disposition guidance was raised, and you said you actually are going to be playing at the high end of the range, but FFO guidance was bumped a couple of -- a couple of percent. So trying to figure out how -- obviously there was some onetime items there that probably will merit an increase in FFO. But it seems like the other pieces, acquisitions and dispositions, would be weighing on FFO. Could you talk a little bit about that and how that functions into the new guidance?

[Andrew M. Alexander:]

This is Drew. I'll try to give a broad overview, and Steve can chime in with more details, if that's helpful. But as you've observed, it's something that we're quite proud of, the fact that we're comfortable with the change in guidance even though we do expect a good amount of disposition and probably not that much in acquisitions. A lot of it has to do, in fairness, with timing, that while we are working on a lot of properties. When you look at when they will close throughout the remainder of the year, it's not as dramatic, obviously, as it closed earlier in the year. And then a lot of it goes to Johnny's point about the amount of property that we have that is signed and not commenced and what we see commencing through the rest of the year, as well as that, knock on wood, the fallout situation's been pretty good. So as we look at all the different projections, we feel pretty good about it. I mean, Steve, may give a little more.

[Stephen C. Richter:]

The only thing that I would add is you also have to dial in the fact that we deem -- did redeem the $200 million of preferred, and that has a contribution for the balance of the year.

[Operator:]

From DISCERN, we have David Wigginton on the line.

[David L. Wigginton:]

Just a question on tenant fallout. It seems like lower-than-expected fallout has clearly been a trend this year, not only on your portfolio but across your peers. And I was wondering, your revised same-store NOI growth guidance, does that reflect a revision of your expectations for tenant fallout of the remainder of the year, or was that just a reflection of what's happened year-to-date?

[Johnny L. Hendrix:]

Yes, David. This is Johnny. We definitely have -- that is part of the revised guidance that our expectation is -- we will see less fallout than we had initially expected. We monitor our AR on a regular basis, and I'm meeting once a month with our collectors. And we generally, have a very short list of folks who are past due. So we don't see a lot of fallout going forward to the rest of 2013.

[David L. Wigginton:]

Okay, and then just kind of following up on that. I know it's early to be talking about 2014, but it certainly seems like we're in an environment that's conducive to lower than maybe historical average tenant fallout. And as you guys kind of think about your annual budgeting process, I mean, are you looking at historical averages? Or how do you go about thinking about that? And would you expect fallout in 2014 to continue sort of along the same lines that we've seen this year?

[Andrew M. Alexander:]

Yes, David, what we do when we look at the budget, we're in the middle of this process today, is we're looking at a space-by-space review of every tenant and our expectations will be whether it's to renew or stay in the same space or to grow. And so we're kind of projecting that by tenant. And our projections are that it will stay relatively low, pretty similar to what we've seen over the last several quarters. The one caveat of course is -- what happens with the economy, and we certainly can't control that. And our outlook is that the economy and the markets we're in will continue to grow at a modest pace and that there will be job growth in those markets. So kind of putting all those together, our anticipation is fallout will remain relatively low. Another interesting piece that you can look at is in 2007, we had about only 65% national tenants. Today, we are almost 80% national and regional tenants. So the expectation for those tenants would be that there would be less fallout. Some of that is due to the recycling efforts that we've gone through. And then some of that is just due to the fact that there hasn't been a lot of new business formation for mom and pop. So for the most part, what we replaced them as they fall out with is more regional or national tenants.

[Operator:]

From SunTrust, we have Ki Bin Kim back on the line.

[Ki Bin Kim:]

Just a couple of quick follow-ups. Your spread between commenced and leased percentages have tightened a little bit today. Just from a longer-term perspective, what is the structural gap between those 2 metrics?

[Johnny L. Hendrix:]

Yes. This is Johnny, Ki Bin. Drew and I kind of talk about this a lot. I think there's one argument that could be made that GAAP is wider today than it has been historically. On historical basis, it's about 180 basis points in our portfolio. And I don't know if it takes longer to get permitted or that's all part of it. But it does seem to be wider than we are used to. I really don't know if that's a structural change or that's just kind of -- just because we've leased a lot of space.

[Ki Bin Kim:]

Okay. And I think you guys mentioned a little bit about your {indiscernible] joint ventures. You do have a lot of couple of them coming through in the next like 2 -- around 2 years. I -- how would you describe those -- the portfolio quality of your joint ventures for the ones that are coming due? Like I think AEW is one of them. Is it better -- higher quality, better than your existing portfolio, or similar? And I guess you'll talk more about it when you get closer to it, but are those things that you would rather initially buy?

[Andrew M. Alexander:]

Again, This is Drew. I think we'll look at everything case by case. Factually, one of the AEW deals, Lone Star deal does have a lot of Houston area assets which is good. There are, in some cases, some independent supermarkets, which is something that we have to look at carefully in terms of how the REIT public market values those versus the private markets. And in a lot of cases, we've historically been extremely comfortable with these operators, a lot of them doing business in the Hispanic market, which is obviously huge. But it is something that a lot of factors would go into again, a decision on a case-by-case, asset-by-asset basis really.

[Ki Bin Kim:]

Okay. And this last question, could you remind me -- you do have a pretty sizable land bank. How much of that has been written down during the downturn, if at all?

[Andrew M. Alexander:]

There are definitely -- we may have to get back to you with the specific numbers. There have definitely been some impairments over the years in the millions of dollars, certainly but -- Tens of millions, Steve tells me. But I think specifically, we may want to follow back to you guys. It's going to take a little bit research to grab that. The good news is we feel comfortable in a broad perspective with the approximately $100 million, $105 million we have today. We've got more deals working than we've seen. Everything takes time in terms of selling property. A lot of these cases we're going through rezoning things. But we do think we're making some progress on -- in a lot of cases, selling, in some cases, we see some seeds of some new developments. So it will be a multiyear project, but we are making some progress on that. But I think we'll get back to you with the specific impairment numbers.

[Ki Bin Kim:]

But you said the current GAAP land bank value is 105?

[Andrew M. Alexander:]

Looking at it, it's really closer to 104, 103.7.

[Ki Bin Kim:]

Okay, got it. I know you'll get back to me with the numbers. But what was the write-down -- When was the write-down? If it was onetime or I'm not sure if it's multiple fees...

[Andrew M. Alexander:]

It was over a couple of different quarters, as I recall. So that's where, I think, we'll have to settle back and look.

[Stephen C. Richter:]

That was starting in 2009 and probably again in '10. And I would add that we, according to GAAP, have to review those on a quarterly basis but annually, we go out and get BOBs [ph] and other things to confirm the value of our land bank. So I think we're very comfortable with the numbers.

[Johnny L. Hendrix:]

And let me just also say, we are generally very comfortable with the numbers. But on any piece of land, just like any other inventory that a retailer might have, if somebody offers you 90%, 85% of what you think it's worth with a quick certain close, it is something to think about versus holding on to the land. So it is something that while we're generally comfortable, we are not in a position to promise there will never, never, ever be an impairment again.

[Ki Bin Kim:]

Right, and -- but when you -- I mean when you look across your land bank and in conjunction with your development pipeline and your maybe future development, how much do you -- what percent of land bank do you think is evolvable within 3 years versus those that are probably structurally longer-term impaired that you maybe want to get rid of? Or just kind of...

[Andrew M. Alexander:]

We hesitated to put a number on that. We think that there are some opportunities there. But we frankly, don't see is really huge number, such that we're calling it to your attention. And the timing of it is still so uncertain. And really frankly, a lot of it is sort of up to us. A great example is a property we have in Las Vegas, Decatur in the North side of Las Vegas, where we have an open Walmart and a Target -- excuse me, an open WinCo and a Target, and we could do some box deals. But the rent the tenants are willing to pay today just doesn't really motivate me to want to ink those long-term deals. We also, in a lot of cases, are seeing different uses in a lot of cases, residential, is given where some of the tenants are in paying new build rent that the residential use as a higher and better use that some will be sold that way. So it's very much case by case, and I really hesitate to put a specific number out there. I don't think it's huge and I want to continue to do the right long-term thing, which is versus feel some pressure to make a number I gave you all.

[Ki Bin Kim:]

That's fine. And for the small cases where you think it is different and better use for that land, is there more -- if it was residential, would it be an outright sale or would you actually joint venture and partially own that...

[Andrew M. Alexander:]

Generally, a sale, yes.

[Operator:]

From Green Street Advisors, we have Jason White back on the line.

[Jason White:]

One follow-up question. On the nonrecurring fee income, is that netted out in your recurring FFO estimate? I see there is an other line item, but it's not described what's in there.

[Stephen C. Richter:]

The JV fee income is included in recurring income but we're acknowledging that it's not likely to recur at that, the $900,000 going forward. So I don't mean to be redundant, but it's kind of like it's non-recurring recurring.

[Jason White:]

So it's in recurring FFO, that, that fee income?

[Andrew M. Alexander:]

Yes. For the first half of the year. But it is something that in our projections for the second half of the year and in our guidance to you all, as Steve said, it won't be sort of a run rate duplicatable in the second half.

[Stephen C. Richter:]

correct.

[Jason White:]

I was just making sure whether it was in or out on Page 6 of your supplemental. It says non-recurring, and it was $1 million. And then I saw on Page 5, it doesn't look to be excluded from recurring FFO. So I just wanted to make sure definition-ally it was in or out. So it is in recurring FFO then?

[Stephen C. Richter:]

That is correct. It is in recurring. And as I mentioned in a response to a previous question, we have about $900,000, $1 million is about $0.0075. And then we have another $0.005 or so for the bad debt pieces. The difference between our $0.49 and what I would call kind of a recurring run rate kind of number is $0.015 difference, if you will. But that's where the bad debt gets extremely difficult to estimate at times.

[Operator:]

From DISCERN, we have David Wigginton back on the line.

[David L. Wigginton:]

Of the 700,000 of square feet that's set to commence over the next few quarters, what percentage or what's the breakdown between anchor versus non-anchor?

[Andrew M. Alexander:]

I think about it, it's probably around half, about half anchor and half shop space.

[David L. Wigginton:]

Okay. So 350,000...

[Andrew M. Alexander:]

Portfolio overall -- overall, the portfolio, we got about 62% of the space is over 10,000 square feet, 38% is under. I think we're 90% -- almost 98% leased in the boxes. So that's -- I think that's probably pretty close.

[David L. Wigginton:]

Okay. So then just looking at the potential upside then to your occupancy levels here, I mean, you're probably pretty close to structural occupancy for your anchors. You're looking pretty, pretty good on the non-anchors as well. I mean, how much higher do you think you can get from that 88.5% lease rate on the non-anchor stuff?

[Andrew M. Alexander:]

Well, we're kind of -- kind of hearing a little giggling here because we've had some back-and-forth on really what is full occupancy. Back in 2006, we were -- we're 97% leased in California and 97.5% leased in Florida. And certainly, with the higher quality assets that we have been in the central part of the U.S. I don't think it's unreasonable to think that we can move up into that 97% range. So the portfolio, generally, I think, you could see a 96% occupancy rate.

[David L. Wigginton:]

Okay. And then just final question. And I know I've had this conversation with you guys before, but I can't find it in my notes. When you report -- you're reporting your lease spreads, is that signed for the quarter, right?

[Andrew M. Alexander:]

Yes.

[David L. Wigginton:]

That's not what's commencing. So what's the typical lag between when you sign something and when it commences?

[Andrew M. Alexander:]

It really varies because if you have a TJ Maxx, for example, they're going to want to hit a window either back to school or holidays. And I wouldn't even begin to tell you what -- there would be an average. I'd tell you shop space will probably be 60 to 120 days, again, depending on what windows they're trying to do, what the municipality is, how we're trying to get entitled. So it will be very difficult on the anchors to even give you anywhere close to a number.

[Operator:]

[Operator Instructions] And it looks like we have no further questions. I will now turn it back to the speakers for any final remarks.

[Andrew M. Alexander:]

Thank you, Brandon. This is Drew. I just want to thank everybody for their interest in Weingarten and their participation on the call. We'll be around later, if there are more questions. Also, I wanted to mention we got a save-the-date card out for a deep dive analyst investor presentation with a bunch of senior management. It's on Tuesday, December 10. Again, the save-the-date cards went out. But I just want to remind everybody of it, Tuesday, December 10, at the Pierre Hotel in New York City. So we look forward to seeing many of you there. And again, I think it will be very interesting to get into a lot of the portfolio transformation. Hear from Patty Bender as well as Johnny, Steve, myself as well as some of the other members of the management team. So I hope everyone can make that, Tuesday, December 10 of this year. So again, thanks so much. I know you all are busy with a lot of calls. So everybody have a great day.

[Operator:]

And this concludes today's conference. Thank you for joining. You may now disconnect.